5.2f - Setting Budgets Flashcards
Advantages of budgets:
- Measure whether objectives are being achieved
- Control expenditure
- Provide sense of direction
- Monitor actual results against budget
- Gain financial support
Budget holder definition
Someone responsible for spending or generating the money for each budget
Zero-based budgeting definition
A budgeting method involved starting with a budget of £0 and having to get approval to spend money
Historical budget definition
A budgeting method which is updated each year
Advantages of historical budgets:
- Quick
- Simple
Disadvantages of historical budgets:
Assumes business conditions stay unchanged
Advantages of zero-based budgeting:
- Accurate
- Flexible
Disadvantages of zero-based budgeting:
Takes longer
Fixed budgeting definition
A budgeting method involving budget holders having to stick to budget plans throughout the year, even if market conditions change
Flexible budgeting definition
A budgeting method involving budgets being altered in response to significant change
What are the three types of budget?
- Income
- Expenditure
- Profit
What are the key start-up costs?
- Cost of premises
- Staff costs
- Marketing
Disadvantages of budgets:
- Lack of experience
- Lack of information
- Unexpected costs
- Hard to predict
What are the steps to set a budget?
- Set clear objectives
- Gather information to base budget on
- Construct income budget
- Construct expenditure budget
- Construct profit budget
- Summarise detailed budgets in master budget
